HCM deal flow nears high-water mark

Contact: Brenon Daly

Dealmaking in the human capital management (HCM) market has surged in recent months, pushing spending to near-record levels. So far this year, we’ve tallied 36 HCM transactions, with an aggregate value of $1.9bn. That basically matches the high-water mark of $2.1bn in the sector set during the first three quarters of 2007. (However, we should note that nearly all of the HCM spending three years ago came from the $1.8bn take-private of Kronos by Hellman & Friedman in March 2007.)

The number of HCM transactions so far this year (36) matches exactly the number during the same period in 2007. Another similarity between the two years is that strategic and financial buyers have both been active in the sector. Consider this: In the four deals announced so far this month, buyout shops have been behind two while corporate buyers have inked the other two. Valuations for this month’s transactions – and most other recent HCM deals, for that matter – have ranged from just below 2 times trailing sales to around 4x trailing sales.

However, in the sector’s latest acquisition, the valuation came in well north of that range. On Monday, private equity firm Madison Dearborn Partners (MDP) took a majority stake of Fieldglass in a transaction that valued the HCM vendor at more than $220m. (ArchPoint Partners advised Fieldglass in the deal between the two Chicago-based firms.) Fieldglass focuses on the so-called contingent market, which covers project-based contractors, offshore workers and so on. According to our understanding, Fieldglass generated nearly $30m in revenue and $5m in EBITDA in 2009 and was tracking to nearly $40m in sales and $10m in EBITDA for this year. That means MDP’s stake valued the company overall at about 6x trailing sales, according to our calculations.